Editorial
In this paper the authors analyze European business cycles before and under EMU. Across the two periods the authors find 1) a significant decline in real exchange rate volatility, 2) significant changes in cross-country correlations, and 3) the volatility of macroeconomic fundamentals largely unchanged. They develop a two-country business cycle model and show that the calibrated model is able to replicate key features of the data prior to and under EMU. The authors find that the euro has a strong bearing on the transmission mechanism as cross-country spillovers increase substantially under EMU. As a result, foreign shocks become more and domestic shocks less important in accounting for the (unchanged) volatility of macroeconomic fundamentals.